Inventory policy with parametric demand: Operational statistics, linear correction, and regression

Abstract

In this paper, we consider data-driven approaches to the problem of inventory control. We first consider the approach of operational statistics and review related results which enable us to maximize a priori expected profit uniformly over all parameter values, when the demand distribution is known up to the location and scale parameters. For the case of the unknown shape parameter, we first suggest a heuristic approach based on operational statistics to obtain improved ordering policies and illustrate the same for the case of a Pareto demand distribution. In more general cases where the heuristic is not applicable, we suggest linear correction and support vector regression approaches to better estimate ordering policies, and illustrate these using a Gamma demand distribution. In certain cases, our proposed approaches are found to yield significant improvements. © 2011 Production and Operations Management Society.